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26 December, 09:05

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

Variable costs per unit: Fixed costs:

Direct materials $150 Factory overhead $350,000

Direct labor 25 Selling and admin. exp. 140,000

Factory overhead 40

Selling and administrative expenses 25

Total $240

Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

a. Determine the amount of desired profit from the production and sale of 10,000 cellular phones.

$

b. Determine the cost per unit for the production of 10,000 units of cellular phones.

$per unit

c. Determine the product cost markup percentage for cellular phones.

%

d. Determine the selling price of cellular phones. Round to the nearest dollar.

Cost $per unit

Markup $per unit

Selling price $per unit

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Answers (1)
  1. 26 December, 09:26
    0
    a) desired return 360,000

    b) manufacturing cost $245

    c) 27% in dollar:

    d) sales price $311

    Explanation:

    desired return: 1,200,000 x 30% = 360,000

    Then, fixed cost: 350,000

    Variable cost: 150 materials + 25 labor + 40 overhead + 25 S&A = 240 variable

    Sales Price = X

    We need to solve for the sales price at which the company gain 360,000 dollar:

    volume x (sales - variable) - fixed = profit

    10,000 x (sales - 240) - 350,000 = 360,000

    sales = (360,000 + 350,000) / 10,000 + 240

    sales = 311

    manufacturing cost:

    350,000 / 10,000 = 35 fixed overhead

    150 material + 25 labor + 40 variable MO + 35 fixed MO = 245

    311 / 245 - 1 = 0,2693877 = 27%
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